IT GOT EASIER TO START A BUSINESS IN BRAZIL! WHAT IN PRACTICE MEANS THE SINGLE-MEMBER LLC (LIMITED LIABILITY COMPANIES)

For undertaking in Brazil through a legal person it’s necessary obtaining a public registry before the Board of Trade, the Notary Public Office or the Brazilian Bar Association, informing in the Articles of Association the activities that will be developed, where the company will be located, who are going to be the shareholders and which is going to be the contribution of each one in the share capital. Upon a public registry, the legal person is constituted and receives a number of CNPJ, that is a number of registration in Brazilian Federal Revenue. At this moment of opening the company, the entrepreneur shall decide which legal nature adopt.

One of the most common types used in Brazil is the Limited Liability Companies – LLC (LTDA in Portuguese), because it limits the liability of partners to their participation in the capital stock, what decreases the risk and gives bigger safety to entrepreneurs when starting the business. However, the big hindrance that some entrepreneurs used to find was the existence of at least two shareholders to undertake a LLC.

Historically, when there was only one person interested in opening a company, she was forced to obtain a registry of Sole Proprietorship, that ensures gaining a number of registry (CNPJ), but makes the natural person respond unlimitedly for all the company’s obligations, risking all her personal patrimony. In 2011, the creation of the EIRELI (individual limited liability company) offered a new alternative, permitting the registry of a company also with limited responsibility, but with only one holder. In practice, the difficulty start to be something else: when opening an EIRELI, the entrepreneur need to pay in a capital of at least 100 times the current minimum wage in the country (what, in 2019, represents R$99.800,00). For this reason, a LLC encourages more the entrepreneurship, because it doesn’t require a minimum of capital in the moment of constitution, so partners can decide which capital value is most compatible with their operation.

In 2019, the Law Of Economic Freedom (Law n° 13.874) brought the solution for this impasse, with the institution of the Single-member LLC. But, why is that relevant?

With this change of legislation the entrepreneur the entrepreneur can now choose to start his business activities with the advantages of an LLC, without needing to admit other partners, being able to pay in any value of capital stock and with a limited risk before his personal patrimony. In practice, the tendency is that EIRELI (individual limited liability company) and the registry of a Sole Proprietorship go into disuse for not having any benefit in choosing them against the characteristics of a LLC, that can be now both sole and plural.

Not only benefiting new companies, the legislation also permits that companies already constituted can adopt this format, being of any type and transforming into a Single-member LLC, including the removal of partners that had previously been part of a LLC’s corporate structure without actually participating in the business.

If you are thinking of starting a new company or restructuring your company or economic group, count on the advice of Dutra Business Management to carry out the structure that best suits to your business. We are specialists in corporate acts!